Clients with USD Loans are Greatly Affected by Exchange Rate Fluctuations, and May Not Always be Aware of Exchange Rate Risks At the end of 2014, the Georgian Lari (GEL) began a dramatic devaluation against the U.S. dollar (USD) that continues at the time of writing (October 2015). Currently, the Lari has fallen to its lowest rate since 2004, worse than crisis periods such as 2008, when the country was hit by the global financial crisis as well as by the August War with Russia. This devaluation, largely driven by a decrease in exports to Ukraine, placed the Lari amongst the worst performing currencies in 2015. Nearly one-third of clients have USD-denominated loans, which have appreciated steeply in value over the past year To protect themselves against currency risk, many MFOs, which also receive investment and hold liabilities in U.S. dollars, started issuing loans in USD rather than in Lari. This practice is common; nearly one-third of current
MFO clients surveyed have dollardenominated loans. The proportion of USDissued loans was slightly lower amongst former MFO clients (Figure 12). Those with larger loans appear to be more likely to have a dollar-denominated loan. In our sample, the median size of a USD loan is nearly twice as large as that of a loan issued in GEL (Table 1). Many of these clients did not realize that their loans would be in USD before accepting the loans, while others did not fully understand the associated risks Debt obligations in USD pose tremendous challenges for clients, yet many did not realize that their loans would be issued in dollars or did not fully comprehend the associated risks. Thirteen percent of clients with USD loans were not aware that their loan was in dollars when they accepted the loan (Figure 13). Further, 11 percent reported that information on exchange rates was not very clear, and 9 percent reported this information was not clear at all (Figure 14).
FIGURE 11
Performance of Lari Compared with USD, 2014 to 2015 Georgian Lari to the Dollar 2.5
2.3
2.1
1.9
1.7
CLIENT VOICES GEORGIA COUNTRY REPORT
10/2015
9/2015
8/2015
7/2015
6/2015
5/2015
4/2015
3/2015
2/2015
1/2015
12/2014
11/2014
10/2014
9/2014
8/2014
7/2014
6/2014
5/2014
4/2014
3/2014
2/2014
1/2014
1.5
15